Bank of America Merrill Lynch initiated coverage of GoPro on Friday with a buy rating, forecasting a 34 percent rally in the next 12 months to $19.

It believes the rest of Wall Street is underestimating the potential for the action video cameramaker to profit from the expanding drone market.

"We are positive on GPRO's ability to improve sell-in and sell-through on its new line of cameras and potentially generate incremental revenue above Street expectations from its new Karma drones," analyst Jason Mitchell wrote in a note to clients.

The analyst thinks GoPro has the potential to generate $1.85 billion in revenues in 2017 from the growing drone market and other upcoming products, compared with estimates of $1.7 billion from the rest of Wall Street.

"Although the camera market is highly competitive with low-end producers priced well below GoPro and well known manufactures like Garmin and Sony increasing product quality and features, we think GoPro has the strongest brand in the industry," Mitchell wrote.